To Our
Shareholders:
Gabelli Asset Management, Inc. reported record
revenues and earnings
for the third quarter ended September 30, 1999. We are pleased to
bring you the highlights.
Financial Results
Total revenues for the three months ended September 30, 1999 rose 28% to $44.1 million compared to $34.4 million for the third quarter of 1998. Operating income for the quarter was $19.5 million, 34% higher than the $14.5 million recorded in the third quarter of 1998. Net income rose 47% to $10.2 million versus $7.0 million in the third quarter of 1998. On a per share basis net income climbed 17% to $0.34 per share on 29.9 million shares outstanding versus $0.29 per share on 24 million shares outstanding in 1998 on an adjusted historical basis.
For the first nine months of 1999 total revenues climbed to $126.4 million up 24% over the $102.3 million recorded in the first nine months of 1998. Operating income was $53.0 million in the first nine months of 1999, an increase of 22% over the year earlier period. Net income rose 53% to $31.2 million in 1999 as compared to $20.4 million in the first nine months of 1998. On a per share basis, and excluding a first quarter nonrecurring charge, we earned $1.04 per share, a 22% increase over net income of $0.85 per share in the first nine months of 1998 on an adjusted historical basis. Including the nonrecurring charge of $1.03 per share, the Company earned $0.01 per share for the first nine months of 1999.
The solid gains in operating results were principally achieved through
the continued strong growth in assets under management. Average
total assets under management rose 28% to $18.9 billion in the 1999
quarter from $14.7 billion a year earlier. The growth was paced by
our open end equity funds which climbed 34% to $6.7 billion from $5.0
billion on a year to year basis. Assets under management at
September 30, 1999 were $18.6 billion compared to $13.9 billion at
September 30, 1998 and $18.8 billion at June 30, 1999. The strong
overall performance of our funds, led by our four "Five Star"
Morningstar rated funds, resulted in over $400 million in new cash flows
during the quarter.
Also, our highly regarded arbitrage partnerships
added 20% in the third quarter rising to nearly $200 million.
Operating margins improved to 44.2% in 1999 from 42.3% in the same period
a year earlier.
Operating Highlights
Fund performance, a broader array of investment products and expanding channels of distribution continue to be critical factors for fueling growth in the investment management industry.
Our "Five Star" funds at September 30, 1999, the Gabelli Growth fund (our domestic growth product), Gabelli Global Growth fund (Interactive Couch Potato(r)), Gabelli Global Telecommunications fund and the Gabelli Value fund, represented 60% of our "open end" mutual funds. Overall nine of our fourteen rated open end mutual funds representing over 93% of open end assets were rated four stars or better.
New products in the third quarter were highlighted by the introduction of the Gabelli Global Partners Ltd. domestic and offshore alternative investment partnerships; the Gabelli Blue Chip Value fund managed by Barbara Marcin, CFA, and the Gabelli Utilities fund managed by Timothy O'Brien, CFA. Each of these products provides the Gabelli funds shareholders new opportunities to create wealth. On October 1st we completed our alliance with the Mathers Fund (renamed Gabelli Mathers fund) providing fund shareholders a fund that offers wealth protection in the event of a substantial market decline. The Mathers fund adds $100 million in assets and nearly 5,000 new shareholders to the Gabelli family of funds.
We announced our plans to introduce multi class shares for our global funds including the Gabelli Global Growth and Gabelli Global Telecommunications funds, the Gabelli Global Convertible Securities fund (ranked first by Lipper, Inc. at September 30, 1999 for the past twelve months in its fund category) and the Gabelli Global Opportunity fund, launched in May 1998 and up nearly 50% this year alone. The introduction of multi-class shares provides us entry into the more than $1.7 trillion of domestic assets currently sold through load channels. Introduction of these multi-class products is expected in March 2000.
Relationship centers were added in the greater Boston and Chicago areas as well as Palm Beach, Florida. We continue to evaluate other domestic and international opportunities.
Financial Strengths
Cash and investments at September 30, 1999 were $185 million. Our outstanding debt of $50 million will be tax deductible when paid, reducing the net cost of our debt to $30.9 million. Overall we continue to maintain a strong and liquid balance sheet to capitalize on opportunities.
Share Repurchase Program
The Board of Directors authorized the repurchase of Class A common stock. This program was initiated because we believe our stock was well below intrinsic value. In addition, repurchases reduce the dilutive impact of our stock option plan. At September 30, 1999 we repurchased 182,800 shares at an average price of $15.67 per share. The total number of shares outstanding at September 30, 1999 was 29,817,200 comprised of 5,817,200 of Class A shares and 24 million of Class B shares.
Gabelli Asset Management began trading on the New York Stock Exchange on February 11, with the sale of six million shares of its Class A Common Stock in its Initial Public Offering at $17.50. The Offering was led by Merrill Lynch, Salomon Smith Barney and Gabelli & Company.
We want to thank our clients and our professional staff for their support, confidence and encouragement as we build on our foundation to deliver on our growth objectives and enhance shareholder value. Along with third quarter financial statements, we include quarterly data for 1998 on an adjusted historical basis as well as on a "pro forma" basis.
Forward Looking Information
This Shareholders' Report contains certain forward looking information, including without limitation, business strategies and growth objectives, intrinsic value and the overall outlook for 1999 (including without limitation certain contemplated transactions). It should be recognized that such information are estimates or forecasts based upon various assumptions including those set forth herein as well as meeting the Company's internal operating performance assumptions, competitive conditions, and the expected performance of the economy and financial markets as they impact the Company's business. There may be other unknown risks, uncertainties or factors that may result in actual results, performance or achievements being materially different. There is no assurance that the forward-looking matters can be accomplished on terms acceptable to the Company or what the terms thereof may be. As a result of the foregoing and other factors, no assurance can be given as to future results and neither the Company nor any other person assumes responsibility for the accuracy or completeness of such information.
Mario J. Gabelli
Chairman & Chief Executive Officer
Unaudited Consolidated Statements of Income
Unaudited Condensed Consolidated Statements of Financial Condition